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Rubicon seeking new CEO with M&A experience

22 Feb 2017

Sapphire manufacturer has scaled back operations dramatically in recent months but is now looking to expand with acquisitions.

Nasdaq-listed sapphire crystal maker Rubicon Technology says that it is looking for a new CEO to lead the company as it emerges from a period of major consolidation.

In a letter to shareholders signed by chairman Don Aquilano the Illinois-headquartered company, which in late 2016 exited the highly competitive LED market for sapphire substrates and shut down its Penang, Malaysia, wafer-polishing facility, wrote:

“The optical and industrial sapphire markets are growing, with new applications for sapphire emerging, and, given our capabilities we believe we are well-positioned in this higher-margin segment of the market.

“However, this is a small business so we are actively evaluating the acquisition of profitable companies both in and outside of the sapphire market in order to accelerate growth.”

Because acquisitions are being given greater consideration, the Rubicon board of directors has decided that a new CEO with more extensive experience in merger and acquisition activity than current boss Bill Weissman is required – although Weissman is set to stay in the role until the new CEO is appointed.

Headcount tumbles
With the closing of the Penang site and further consolidation in the US – Rubicon is also in the process of vacating its site in Batavia, Illinois – the company’s headcount has tumbled from 220 to just 40 employees.

Wafer-patterning equipment used at the Malaysia facility has been sold recently for $4.5 million, with an auction now lined up to sell polishing and fabrication equipment, as well as the real estate itself.

Excess equipment from the Batavia site is also set to be auctioned, with Rubicon looking to sell that real estate – ideally to a buyer interested in acquiring the advanced power and water-cooling systems used in crystal-growth – in the coming months.

All that activity should help to bolster a balance sheet that has been hit hard by the cut-throat competitiveness of the LED substrate sector. Last November, Rubicon reported a quarterly net loss of nearly $25 million as it wrote down the Malaysian site closure at a cost of $10.2 million, as well as excess inventory and raw materials no longer required.

The actions taken meant that, as of September 30, 2016, Rubicon’s cash holdings stood at $16.4 million, out of total assets worth $77.7 million.

‘All options’ on the table
Investors appeared to react positively to the CEO decision, with Rubicon’s stock price rising by 5 per cent following the announcement. However, the company’s valuation remains close to rock-bottom, down more than 95 per cent compared with early 2014, when the LED lighting sector offered substrate providers greater profitability. Weissman, who had previously served as Rubicon’s CFO, first took over as interim CEO in September 2014, before securing the role on a permanent basis three months later.

As detailed in the latest shareholder letter, Rubicon has become a very different business in the space of just a few short months.

Aquilano wrote that although sales will inevitably shrink – annual revenues from purely optical applications of sapphire are typically between $4.5 million and $7 million, compared with total annual sales historically closer to the $50 million mark – Rubicon is already on a sounder footing in terms of cash flow.

With the cash position poised to improve further if site sales and equipment auctions are successful, the company chairman signed off with this:

“As we move forward with this new model, we will continue to evaluate all options and make strategic decisions that we believe will maximize Rubicon’s value.”

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